Shari Redstone

After a years-long plot to consolidate her father’s media empire, Redstone is being sued by CBS to prevent an unwanted arranged marriage with Viacom—an extraordinary legal maneuver that could shake up the entire entertainment industry.

And so it is war. In a stunning legal maneuver, CBS Corporation is seeking a temporary restraining order barring Shari Redstone from re-marrying first cousins CBS and Viacom, which her father, the ailing media titan Sumner Redstone, split up intentionally in 2005. CBS shareholders “face a serious threat of imminent, irreparable harm” from Shari, according to the suit, filed Monday morning in the Delaware Court of Chancery, the nation’s premier arena for settling corporate scores. If validated in court, the suit would also bless the board’s plan to issue a special stock dividend to massively dilute the Redstones’ voting power in CBS from about 80 percent to 17 percent. The one-two punch is just the beginning of what appears to be a calculated strategy to sever Shari’s power over both companies, which her father controls through the family holding company, National Amusements (NAI). On Sunday, a CBS special committee voted unanimously to reject the proposed merger with Viacom, claiming that it was “not in the best interests of CBS stockholders” other than the Redstones. CBS has scheduled a “special” meeting of the full board on Thursday to vote on the issuance of the new dividend. On Friday, the CBS annual shareholders’ meeting is scheduled to take place at Manhattan’s Museum of Modern Art, around the corner from CBS’s granite-clad headquarters.

The CBS legal documents are devastating in their allegations against Shari. They allege that Shari “interfered” with the CBS board-nomination process and installed her father’s personal lawyer, Rob Klieger, on the CBS board and claimed that Klieger has sought to implement her directives. (She also replaced Hollywood producer Arnold Kopelson, a longtime close friend of her father’s, with Dick Parsons, the former C.E.O. of AOL Time Warner.) The lawsuit claims that Shari “acted to undermine” CBS’s management team in a series of “escalating attacks” by “deriding” executives and threatening to replace them. It alleges that Shari improperly injected herself into the special-committee negotiations (a no-no for sure) and “demonstrated her willingness” to replace CBS board members and “to compel” a merger with Viacom, regardless of the special committee’s conclusion to oppose the deal. She also, allegedly, refused to consider third-party offers for CBS and informed a potential suitor—said to be Verizon—to not make an offer for the company “depriving” the CBS board of the chance to consider a deal that would potentially enhance value for all shareholders, not just the Redstones. (A representative for Shari Redstone refuted these characterizations.)

It’s an extraordinary twist in a legal battle that has contributed to CBS losing more than $6.5 billion in value since last August, when Shari began her most recent effort to put CBS and Viacom back together. It’s also a potentially brilliant legal move—orchestrated by über-lawyer Marty Lipton, at Wachtell, Lipton, Rosen, & Katz—reminiscent of the takeover battles of the 1980s, when one corporate raider after another tried to get control of big companies. Then, raiders like Carl Icahn would acquire a large stake in a takeover target, and use their leverage over the board to strip the company’s assets or break it up. This time, however, it’s a civil war—a company attacking its own majority shareholder to protect minority investors. (Sara Evans, Shari’s public-relations representative, said in a statement to me that National Amusements “strongly disagrees with CBS’s interpretation” of the provision that would allow CBS to dilute the Redstones’ stock, and that even if the clause could be interpreted differently—“which we do not believe it would be”—it would have to be aligned with CBS’s broader fiduciary duties, which Evans argues it is not. “There is very clear case law that the shareholders to whom they hold fiduciary duties include the majority shareholder, NAI, and that acting to dilute NAI’s voting rights would violate such duties,” she added.)

The legal move against a controlling shareholder is nearly unprecedented, although CBS’s lawyers did cite in their filings the successful court ruling, in 2004, that prevented Canadian businessman Conrad Black from trying to thwart the independent process he set up to govern the sale of his publishing company, Hollinger International. If CBS is successful in issuing the stock dividends to dilute the voting power of the Redstones, CBS would be free to make its own way, free of the family’s micro-managing for the first time since Viacom acquired CBS in 2000. The Viacom charter would allow Viacom to dilute the Redstones voting power in a similar way, if Viacom’s minority shareholders were to push for a similar proposal. So far, the market seems to be rewarding CBS’s audacity, pushing its stock up around 3 percent. Viacom shareholders, newly fearful the CBS deal will get scotched, and that the company might have to go it alone into an uncertain future, pushed its stock down more than 6 percent. As one longtime Wall Street media banker e-mailed me, applauding the move, “I thought the nuclear option was only available to North Korea.”

Until Monday, the long-running corporate soap opera appeared to have reached its denouement. The expectation had been that once the CBS upfronts are concluded on Wednesday (or maybe sooner), that Shari would drop her demand that Viacom C.E.O. Bob Bakish be part of the merged company’s succession plan, and that CBS’s special committee would announce its acquiescence to the merger. Or, perhaps, that CBS would call off the shotgun marriage. Instead, CBS C.E.O. Les Moonves, who is also president and chairman of the board, went ballistic. The special committee is now seeking the temporary restraining order, according to the filings, to protect “all stockholders” from further breaches of Shari’s “fiduciary duties.” The committee asserted its “grave concerns” that Shari will “use her control to irreparably interfere” with CBS management and will try to “rewrite” the special committee’s decision to reject the merger by seeking to follow through on the “threats” to replace them, one by one, with directors more to her liking.

Shari Redstone might have gotten away with it, too, and she still could, if the lawsuit falls apart. While that battle rages in New York and in Delaware, it is instructive to examine the steps that Shari took, starting in the summer of 2015, to gain control of her father’s media empire, despite that fact that while Sumner Redstone is now seriously incapacitated—he’ll be 95 years old on May 27—he was for years adamantly opposed to her having any role whatsoever in the oversight of the two companies. In July 2015, for instance, after a visit with Sumner, Shari wrote her son Tyler, “your grandfather says I will be chair over his dead body.” Well, he’s still alive, and Shari is now vice chairman of the boards of both CBS and Viacom, as well as the de-facto controlling trustee of four of the seven votes on the trust that will control Sumner’s controlling stakes in both CBS and Viacom should he die. (He once said he would live forever.)

The key to Shari’s revenge was getting rid of the two women—Sydney Holland and Manuela Herzer—who had moved in to Sumner’s mansion in Beverly Hills and taken over virtual control of his life, including who could and could not see him and how his health care would be administered. They also managed to get Sumner to give them more than $75 million each—money that Sumner, under Shari’s direction, is suing them to get back.

The first shoe to drop came in July 2015 after stories I wrote in Vanity Fair revealed that Holland was having a long-distance affair with George Pilgrim, a onetime soap-opera actor, in Sedona, Arizona. Often on a daily basis, Holland would take Sumner’s private jet from Los Angeles to Sedona, hang with Pilgrim, and then fly back to Los Angeles later in the day to be with Sumner. Sumner had no idea. After this revelation, Sumner kicked Holland out of his house. In October 2015, Sumner did the same to Herzer. Three days later, on October 15, Shari e-mailed Tyler that it was now time to “undue [sic] all of the legal documents, letters and affidavits that he done against me.”

The next day, October 16, according to an unredacted complaint that Herzer filed against Shari and Tyler in federal court, Shari “caused” her father—by most accounts no longer capable mentally or physically to make such decisions—to rewrite his will (for the 40th time) to remove “millions of dollars in bequests” to Herzer and her children that had been part of his will since 2011. (His signature was nothing more than a long arc running off the page of the document.) Then, on December 11, 2015, according to Herzer’s complaint, Shari “prepared and sent to herself” a letter—only parts of which have been made public—supposedly from her father containing the statement that it was suddenly his “intention” that she “succeed me as the non-executive Chair of the Boards of Viacom and CBS after my death,” contradicting the observation that Shari herself had made, just six months earlier.

The December 11 letter mixes professions of love and precise legalese. “I wish to put our family back as we were before Sydney and Manuela, and restore our family relationship to what it was then. This is very important to me,” Sumner supposedly wrote Shari. Then, despite years of well-documented disputes between the two: “I love and trust you and your family. You are all invited to stay with me and visit me any time. I am very sorry to hear that others have excluded you and your family from my house. That will never happen again.” He also wrote that any of the documents or communications from him in the previous five years—when Holland and Herzer were in control—that “in any way criticized you or your family or minimized your importance to me, should be considered withdrawn, terminated, voided, cancelled, inaccurate and of no effect whatsoever.” He instructed his attorney at the time to take whatever legal action was required to render any of those documents null and void. He concluded the letter by insisting it expressed his “true feelings” and that he was under no “duress” or “coercion” when signing it, which he did, apparently, with a few pen scratches. (Sumner’s signatures get increasingly unrecognizable on each new document that he purportedly authored.)

In February 2016, things started to take shape for Shari. Her father resigned from the boards of both CBS and Viacom, and Shari was offered the job as CBS board chairman. She opted instead to take the job as vice chairman, claiming that she had too much else to do.

On May 16, 2016, a new letter, purportedly from Sumner, had the effect of removing two longtime trustees of National Amusements: attorney George Abrams, a longtime friend of Sumner’s, and Philippe Dauman, the longtime Viacom C.E.O (and briefly the board chairman) who was often described as like a son to Sumner. Both were stunned by their removal from the holding company board of trustees, which paved the way for Shari to appoint two loyalists. “These steps are invalid and illegal,” Dauman said in response. “They are a shameful effort by Shari Redstone to seize control by unlawfully using her ailing father Sumner Redstone’s name and signature. As she knows and as court proceedings and other facts have demonstrated, Sumner Redstone now lacks the capacity to have taken these steps.” Added Abrams, “I have known and represented Sumner Redstone for over 50 years. I worked closely with him on the building of his theater chain, the acquisitions of Viacom, Paramount, and CBS, and countless business matters relating to all three of those entities, as well as National Amusements. . . . The Sumner Redstone I knew would never have taken this action.”

Before Shari ousted a group of longtime Viacom directors, and replaced Dauman with Bakish as C.E.O., the board issued a statement: “It is clear that Shari Redstone has isolated her father and put his residence on lockdown, which provides clear evidence of her exercise of undue influence. Despite many attempts by members of Viacom’s board, including the lead independent director”—Fred Salerno, who Shari soon thereafter removed from both the Viacom and CBS boards—“to meet with Sumner, they have been denied access.”

On May 24, Shari tapped her daughter, Kimberlee Ostheimer, and her friend, Jill Krutick, a painter and former media exec who Sumner has never met, to replace Abrams and Dauman as the new trustees of Sumner’s trust, giving her firm control of four of the seven seats on the trust’s board. “This is my trust and my decision,” Sumner supposedly said in a statement issued that day. “I have picked those who are loyal to me and removed those who are not.” On June 15, Sumner issued a new statement saying he no longer “trust[ed]” Dauman “or those who support him.” The next day, Dauman and four other Viacom board members were removed from the Viacom board. In August, Dauman left as Viacom C.E.O., along with a $72 million settlement.

According to Herzer, Shari was then one step closer to her plan to take control of both CBS and Viacom. “To the present day, Shari Redstone continues today to send fraudulent communications purporting to be sent by Sumner, a man who cannot speak, write, read, or take care of himself,” Herzer wrote in her unredacted complaint. “And Sumner himself has been completely shielded from his longtime friends and the public, who have not seen or heard from him. Tragically, it is likely that no one will hear from Sumner ever again and that Shari will only give up this charade once Sumner’s passes away and she receives his 80 percent control of [the family holding company]—or, on other words, only when she achieves, contrary to Sumner’s well-documented wishes, complete ownership and control over CBS and Viacom, the goal she has had in mind all along.”

Not surprisingly, the well-paid attorneys and public relations professionals for Sumner and Shari dispute Herzer’s assertions, and those of people like Dauman and Abrams. They also are outraged by CBS’s legal moves. Evans, Shari’s public-relations representative, wrote in a statement that the Redstones’ holding company, National Amusements, known as N.A.I., “is outraged by the action taken by CBS and strongly refutes its characterization of recent events. N.A.I. had absolutely no intention of replacing the CBS board or forcing a deal that was not supported by both companies. N.A.I.’s conduct throughout supports this, and reflects its commitment to a well-governed process.” Rob Klieger, the California attorney representing Sumner in his effort to get back the $150 million or so from Holland and Herzer, also strongly contests the supposition that Sumner has been manipulated. Klieger, who has been paid more than $10 million in legal fees so far, told me that Sumner, in fact, attended a baseball game earlier this month, between the New York Yankees and the Anaheim Angels. (He declined to provide pictures and did not respond to my request to visit Sumner.) He did not respond to a request for comment about CBS’s filings nor did Justin Dini, a spokesman for Viacom.

So long as Shari and Sumner are aligned, however, the lawsuit may be the only way for Moonves to keep his company independent, and away from Shari. The Redstones, after all, are the beneficiaries of a dual-class stock structure, which allows them to control 80 percent of the voting stock in both companies despite their shares being worth around 10 percent of the overall equity. “That’s the pernicious aspect of this structure,” Charles Elson, the director of the John L. Weinberg Center for Corporate Governance at the University of Delaware, told me. “There’s nothing the other shareholders can do. Yet they’re watching this horrible play—play out, if you will—on a stage while they’re sitting in the balcony with absolutely no recourse whatsoever. And the directors themselves, because of the [Redstones’] control, are really completely beholden to and, in most circumstances, dominated by the controlling shareholder.”

The restraining order could change all that. As Elson explained, there’s not much that’s truly “independent” about the two special board committees that Shari set up, if they choose to reject the merger. “What if the special committee said no?” he asked, rhetorically. “The next year she’d replace them.” He said it’s “Kabuki theater” and “form over substance” and smacks of “putting lipstick on a pig.” Shari, he pointed out, has “the ability to remove the directors at the drop of a hat, and the directors are well paid for being there”—between around $300,000 and $400,000 a year at CBS—“and they know that. How long do you think if this special committee rejected the proposition would they remain on the board? I give them weeks, certainly not months, and they know that.” (A representative for Shari Redstone has previously refuted similar characterizations.) He said he was “surprised but supportive” of CBS’s latest legal maneuverings in Delaware.

On Wall Street, of course, board-member “independence” has always been viewed skeptically, which is part of what makes the action taken by the CBS special committee so interesting. As if to illustrate the point, Elson told the story of Ray Troubh, the former Lazard partner who once served as the interim chairman of the board of Enron. Troubh, now 92, has been a director of many corporate boards and made a fine living doing so. “Ray always joked with me,” Elson recalled. “He’d say, ‘You know, you complain about the lack of independent directors in the 1970s. There were always independent directors back then.’ I said, ‘Really?’ He goes, ‘Yeah, I was one of them. There was only one problem: you can only be independent once, and then they got rid of you.’”